SEC files lawsuit against Elon Musk for securities law violation

Key Takeaways

The SEC sued Elon Musk for failing to disclose his Twitter share purchases before acquiring the platform.
Musk’s lawyer claims the SEC’s lawsuit is baseless and suggests no wrongdoing was committed.

The US SEC has initiated a lawsuit against Elon Musk in federal court, alleging he failed to timely disclose his purchase of more than 5% of Twitter (now X) shares before acquiring the social media platform, according to a Jan. 14 filing first shared by DB News.

According to the complaint, Musk started buying shares of Twitter in early 2022 and crossed the 5% threshold in March. This triggered a legal obligation under federal securities regulations for him to report his holdings to the SEC within ten days. The SEC revealed that Musk did not fulfill this obligation until April 4, 2022, meaning an eleven-day delay.

Musk completed the acquisition of Twitter in a $44 billion deal in October that year and renamed it X.

The SEC alleges that Musk’s failure to disclose his ownership stake allowed him to purchase additional shares at artificially low prices, as the market was not aware of his holdings and investment intentions. The complaint estimates that Musk underpaid by at least $150 million for the shares he acquired during this period of non-disclosure.

“Musk’s violation resulted in substantial economic harm to investors selling Twitter common stock between March 25, 2022 and April 1, 2022,” the SEC states in the complaint. “Those investors, unaware that Musk had accumulated more than five percent of Twitter common stock and unaware of Musk’s overall investment purpose, sold their shares at artificially low prices because the market had not yet priced in this material information.”

The securities agency is seeking a court order requiring Musk to disgorge his ill-gotten gains, pay a civil penalty, and be permanently enjoined from future violations of securities laws.

Alex Spiro, Musk’s lawyer, dismissed the lawsuit, stating it is “an admission” that the SEC cannot bring an “actual case,” because Musk “has done nothing wrong and everyone sees this sham for what it is.”

“As the SEC retreats and leaves office, the SEC’s multi-year campaign of harassment against Mr. Musk culminated in the filing of a single-count ticky tak complaint against Mr. Musk under Section 13(d) for an alleged administrative failure to file a single form – an offense that, even if proven, carries a nominal penalty,” Spiro said in a statement to Bloomberg

Musk has yet to comment on the lawsuit.

This is a developing story.